How much of your income goes to Medicare and Social Security?

Does that seem a little high? If you check your paycheck, the amount of money that is actually deducted from your paycheck for Social Security and Medicare is only 7.65%. Employers, however, pay an equal amount of taxes on your behalf (i.e., an additional 7.65%). Previous studies have indicated that all taxes employers pay on employees behalf is funded through lower employee earnings. In other words, if the employer didn’t have to pay these taxes, your salary would be 7.65% higher. Ouch!

Here is the breakdown of what where your payroll tax deductions are going.

OASDI

HI

Total

Employees

6.20

1.45

7.65

Employers

6.20

1.45

7.65

Combined total

12.40

2.90

15.30

Notes that OASDI (Old Age Survivors and Disability Insurance) is Social Security and HI (Hospital Insurance) covers only for Medicare beneficiaries’ Part A (i.e., hospital) medical costs.

“Previous studies have indicated that all taxes employers pay on employees behalf is funded through lower employee earnings. In other words, if the employer didn’t have to pay these taxes, your salary would be 7.65% higher. Ouch!”
If this is true it raises the question why employees would not be willing to work for 7.65% less. The obvious answer is that they consider the benefit to be worth the 7.65%. Actually, since the 7.65% comes out pre-tax for both employer and employee, it would cost the employer considerably more to replace the benefit with cash, and it seems likely that the benefit would be reduced as a compromise.